A Modest Proposal: Prosecute Non-Fiduciaries Using Term ‘Advisor’

The solution, Harvey says, cannot be left simply to advisors monitoring themselves more carefully. Rather, the head of the Boston-based financial services consultancy proposes an exclusive “mark of distinction” that fiduciaries must earn:

“Such a standard would require investigating each designee and excluding those that fail to demonstrate a history of client commitment and no infractions of laws or regulations,” Harvey says. “The fiduciary community must demand the education and skills to serve clients in the specific capacities for which they are engaged.”

The heart of Harvey’s proposal is to restrict the use of the word “advisor” (or “adviser”) to fiduciaries alone, leading to prosecution for non-fiduciaries using that label.

“Such a simple action would eliminate the public confusion virtually overnight. Non-fiduciaries can continue to identify themselves as financial planners, brokers or any of the other titles that are in use today,” Harvey concludes.

Meanwhile, the debate over whether to impose a uniform fiduciary standard on all financial professionals continues to intensify through governmental channels as well—as the SEC continues to draw comment on rules it will be drafting on the matter.

One comment posted on the SEC’s website just today offered a ringing endorsement of a fiduciary standard from, of all quarters, a Merrill Lynch advisor—though brokers would be the most affected by a change from the current mandate of “suitability” to one requiring them to put their clients’ interests ahead of theirs, with all that that entails in terms of legal liability.

Said the broker, John Chavies, of Dayton, Ohio:

“As an advisor with Merrill Lynch for over 20 years and having over 22 years of experience in the industry I strongly support a uniform fiduciary standard. Our industry has created confusion for consumers by [trying] to sit on both sides of the issue to reduce litigation risk. A move to a uniform standard would [promote] a more professional industry…”

Last month, after the SEC invited public comment, noted independent advisor Harold Evensky was among the first to respond, also in favor of a fiduciary rule change:

“The risk to the average investor in the current regulatory environment is not a ‘Madoff’ scheme that fleeces a relatively few investors of millions or billions of dollars. Rather, it is a system that allows financial professionals to position themselves as ‘trusted advisers’ and, as a result of that trust, provide recommendations that, while neither fraudulent nor unsuitable, may well be more expensive than an available alternative investment from the same firm.”

Opinion on the public comment site is overwhelmingly in favor of a rule change, and comes overwhelmingly from those already engaged in fiduciary advice.